As a nanny or other domestic worker, you may have questions about your employment status and tax obligations. Even if it’s just a temporary placement, it’s important to understanding your (and your employer’s) responsibilities at the beginning of employment.
Here are some payroll and tax FAQs from household employees.
Am I an employee or an independent contractor?
In almost all situations, nannies and other household workers are employees and not independent contractors. If you take instruction from the employer, have your schedule set by the employer and use your employer’s supplies, tools, and equipment, then you are an employee. If you work under your own conditions, sets your own schedule and use your own supplies, then you are an independent contractor. Tax agencies like the IRS treat nannies the same way as people who work in an office, retail store, or restaurant.
Do taxes need to be taken out of my paychecks?
Yes, if you earn more than $2,100 (2018) from one family during the year. In that case, your employer must withhold Social Security at 6.2% and Medicare at 1.45% of your gross pay. Your marital status and how many allowances you choose to claim on your W-4 form will also impact how much federal and state income tax is withheld from your paycheck.
Will I need to pay any taxes?
Even if you earn less than $2,100 (2018) from any family, you will still have to report any wages earned during the year on your annual income tax return. Be sure to keep an accurate record of your earnings to help you pay both federal and state income taxes for the calendar year when you file your tax returns.
Our friends at GTM Payroll Services have a nanny tax calculator to help you figure out how much in taxes will be withheld from your paycheck.
What if my employer doesn’t want to pay taxes?
Your employer is required by law to withhold taxes if they are paying you more than $2,100 (2018) in a year. We realize that many families want to avoid paying nanny taxes and would prefer to pay you “off the books.” But the truth is that being paid legally isn’t just in their best interest – it’s in yours as well. Here are some reasons why your employer should follow the law:
- Your employer can take advantage of their employer’s flexible-spending plan (commonly called an FSA) and deduct your salary as a qualifying expense.
- The IRS may investigate, fine or penalize families that don’t report your wages; they must withhold taxes for you and disclose the amount on their personal income tax return.
- In order to add funds to your Social Security account, give you the ability to obtain credit, and protect you if you become unemployed, you must be paid legally.
- You and your employer will have a happier employment relationship. The risk of an IRS audit for your employer is greatly reduced , as is the risk of hefty fines for not following the law. And you will have a legal, recorded employment history and be eligible for Social Security, Medicare, and unemployment assistance.
Read more about legal pay for household workers, and contact us at (518) 348-0400 for more assistance.